Administration Proposes Medicare Rule to Cut Hospital Markups on Discounted Drugs

The Trump administration proposed a rule on Thursday that would change how hospitals in the 340B drug discount program are reimbursed by Medicare. The change would cap payments at average sales price minus 33.4 percent for outpatient drugs purchased at discounted rates.

Under the current system, hospitals buy certain drugs at reduced prices but can bill Medicare and patients at higher rates. The administration said the proposed rule would prevent that markup and lower costs for Medicare Part B beneficiaries.

Background on the 340B program The 340B program allows hospitals that serve low-income patients to purchase outpatient prescription drugs at discounted prices. Hospitals have been permitted to retain the difference when insurers reimburse at higher rates.

The administration gave an example involving the prostate cancer drug Lupron Depot. Hospitals can acquire a dose for roughly $700 but receive about $4,000 in Medicare reimbursement plus a $1,000 patient co-payment.

Hospital group response and prior legal history The American Hospital Association said the proposed rule would compound financial pressures on its members. Senior vice president Ashley Thompson stated that the proposals would undermine hospitals' ability to maintain essential services for patients who depend on the program.

In 2018 the administration attempted a similar reimbursement change. The Supreme Court ruled in 2022 that the government could not create a separate payment plan for 340B hospitals. An April 2025 executive order directed a survey of hospital drug acquisition costs.

Results from that survey informed the current proposal. If finalized, the rule would take effect at the start of next year.